Ireland: CRH could benefit as some of its bigger European competitors sell assets to strengthen their balance sheets, according to one senior industry analyst.
Robert Gardiner of Dublin stockbroking firm Davy says that CRH could spend up to Euro3.5bn on acquisitions while remaining within its banking agreements. However, the group's commitments to ensuring that its earnings are over six times net interest payments means that a more realistic estimate of the amount it has to spend on buying up rival businesses is closer to Euro1.5bn.
Gardiner says that the Irish group is alone among European operators in saying it intends to continue spending money on acquiring businesses. Many of its rivals, including Holcim, HeidelbergCement and Lafarge, are preparing to sell off assets to boost their own balance sheets. Gardiner adds that CRH can hopefully 'cherry pick' some of these businesses as they come on the market.
Lafarge sold Euro2.1bn worth of businesses in Asia, Australia and the US in 2011. Gardiner points out that it has signalled that there is another Euro1bn to come in 2012. He says there is speculation that its South African cement business is likely to be put on the block soon. In addition, the British authorities want Lafarge and Tarmac to sell some businesses, including cement, asphalt and readymix concrete plants, and a number of quarries, in return for allowing them to pursue a joint venture in that market. Similarly Holcim's new chief executive, Bernard Fontana, has signalled it could 'selectively' dispose of some of its businesses in 2012 as it moves ahead with a cost-cutting programme, while the group will restrict spending on expansion.
Mexican giant Cemex, which in is in the process of completing the takeover of the old Readymix plc in Ireland, wants to sell US$1bn worth of assets by the end of 2013, and intends to offload about US$500m in 2012. US operator Vulcan is looking at disposing of a similar level of assets.
CRH, which had revenues of Euro18m in 2011, spent Euro230m on acquisitions in the first four months of 2012. Much of the group's growth over the last 30 years has come through acquisition. In 2009, it raised Euro1.2bn through a rights issue in what was the largest such exercise in Irish corporate history. Its aim was to use the cash to buy businesses which it believed its rivals would be forced by to put on the market by high debts repayments. However, a fall in interest rates and other factors helped ease the burden on some of the industry's players and the opportunities that CRH foresaw did not materialise. Acquisition activity at the group has since picked up. In 2011 it spent over Euro600m on 45 purchases.